Alamos Co, exchanged equipment and $18,000 cash for similar equipment. The book value and the fair value of the old equipment were $82,000 and $90,000 respectively. Assuming that the exchange has commercial substance, Alamos would record a gain (loss) of:
Prepare the journal entry for the above transaction.
Gain on tranfer of old assets = fair value of the old equipment - book value of the old equipment
$90,000 - $82,000 = $8,000 (ie option B)
Note : When exchange have commercial substabce , we need to record the gain arising from tranfer of old assets
|Accounts Titles & Explanation||Debit ($)||Credit ($)|
|Equipment - new [ Fair value + Cash]||108,000|
|Equipment - old [Book value]||82,000|
|Gain on tranfer of old asset||8,000|
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